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ATO Challenges Tax Exemption for Community BankMonday, 20th September 2010 at 10:49 am

The Australian Taxation Office is to challenge a Federal Court decision to allow a rural community bank tax exemption status.

Wentworth District Capital Ltd (WDCL) was set up as a Not for Profit corporation to provide face-to-face banking services to the small town of Wentworth on the northern side of the border between Victoria and New South Wales that had no other bank and applied for tax exemption under the Income Tax Assessment Act 1997 .

WDCL says under the legislation the community bank was established for 'community service purposes".

The court was told that for many years the only bank in the town was a single branch of Westpac Banking Corporation. In September 1996 Westpac closed the branch leaving the town without a bank. In 1998 members of the Wentworth community incorporated “WDCL” which entered into arrangements with Bendigo Bank Ltd under which the bank provided banking services in Wentworth through premises, staff and equipment provided by WDCL.

The court heard that WDCL did not distribute profits to its members. Under the income tax laws an association which is “established for community service purposes” is exempt from paying income tax on its ordinary income.

In the decision delivered in the Federal Court on August 13, 2010, the Judge Perram said the facilitation of face-to-face banking in Wentworth had improved the plight of older customers who are more reliant upon cash and passbook account arrangements and on a weekly basis the branch sent a staff member out to an aged care facility to address the issues of those with mobility problems. It also conducted a school banking programme.

The Judge ruled that in a town with no face-to-face banking, its services provided a substantial benefit to the community describing the benefits as both real and tangible providing a concrete amenity of the town.

As such the judge ruled that WDCL was established for community services purposes. The income of WDCL was, therefore, exempt under s 50-1 of the 1997 Act.

The ATO is appealing the decision. The judgement can be viewed at http://www.austlii.edu.au/au/cases/cth/FCA/2010/862.html

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